Insider Trading and the Public Interest
I have previously blogged about the expansion of prediction markets and its effects on the population. Bettors can bet on virtually anything. For example, Will the U.S. invade Iran before 2027? The Iran war is a popular source of betting. Prediction market traders on Polymarket and Kalshi have placed hundreds of millions of dollars in bets on the outcome of the 2026 Iran War, In April 2026, the U.S. entry into Iran carried 90% odds and over $115 million in trading volume.
How the Markets Work
Prediction markets are open exchanges online where people wager on future events, from election dates to economic outcomes. Participants can bet on anything from the price of an asset to how many times a public figure will tweet in a day, to the start or end of a war. Each bet shifts the market odds, which in turn reflect what participants collectively believe is most likely to happen.
Prediction markets are booming in popularity and facing scrutiny amid reports of market manipulation and insider trading. In the U.S., most betting, be it on prediction markets or on sports apps, is on the outcomes of sporting events. Indeed, betting on sports accounts for between 85% and 90% of the total betting volume on U.S. prediction markets.
Each Polymarket is a yes/no question, like “Will Putin meet with Zelenskyy by June 30, 2026?”. You buy shares in “yes” or “no” outcomes. Prices reflect crowd-sourced odds and probabilities. For example, if yes is at 30 cents, that’s a 30% chance. Markets resolve based on official results. For multi-outcome events, like “Nobel Peace Prize Winner 2026,” you simply trade on the specific outcome you think will win.
Prediction markets make it easy for people to bet on all kinds of events pertaining to finance, politics, pop culture, and sports. These markets are booming. The Wall Street Journal reported that the total trading volume on the two major prediction market platforms, Polymarket and Kalshi, has soared to $24.2 billion in April 2026, compared to $1.8 billion a year before.
How is all of this affecting young people, especially young men, who are the most impacted by the surge in sports betting? Some have become addicted to the activity and are being harmed by turning away from their studies, losing social connectedness, and losing money, in some cases a lot of money. Others participate occasionally, as entertainment or out of a need to feel part of social group. Still others do not know what to think but do have questions.
CFTC Enforcement Update
It has been reported that Insider Trading has drawn sharp criticism in traditional financial markets for giving those with privileged access to information an edge over everyday investors. Executives or employees often hold details unavailable to the public, allowing them to buy or sell stocks ahead of major announcements.
Senators John Curtis and Adam Schiff are concerned about the CFTC’s enforcement ability after a “troubling” report on Polymarket’s advertising.
A bipartisan pair of US senators has called on the Commodity Futures Trading Commission (CFTC) to investigate the prediction market platform Polymarket after it reportedly paid social media influencers to make videos of fake bets.
Republican Senator John Curtis and Democratic Senator Adam Schiff sent a letter to CFTC Chair Mike Selig, saying they were concerned Polymarket “used deceptive marketing tactics to promote gambling-style products to US audiences.”
“If accurate, these allegations are deeply troubling and demand immediate scrutiny from the CFTC,” they wrote.
The letter comes after The Wall Street Journal reported on June 20, 2026, that Polymarket paid influencers to film fake trades on websites resembling its platform and that many creators didn’t disclose that Polymarket paid them.
The Journal said it reviewed over 1,100 videos and found that 70% featured fake bets amounting to nearly $2 million.
New York Sues Kalshi
New York has sued prediction market platform Kalshi, alleging it operates an illegal, unlicensed gambling business by offering event contracts on sports, elections and other outcomes. The lawsuit seeks to stop Kalshi’s alleged illegal gambling operation in the state, require the company to forfeit illegal gains, pay restitution to users and pay civil penalties equal to three times those gains.
“No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple,” Attorney General Letitia James said in a statement. “We are taking them to court to uphold our laws and protect New Yorkers.” The lawsuit comes after the New York State Gaming Commission issued Kalshi a cease-and-desist order in October 2025, prompting the company to sue the regulator in federal court. A judge denied Kalshi’s request for a preliminary injunction in July 2026, and an appeals court later rejected its bid to block enforcement while the appeal proceeds.
In response to the report, a Polymarket spokesperson told Cointelegraph that it was “conducting a comprehensive audit of active promotional content to ensure it complies with our standards, as well as applicable regulatory and legal disclosure requirements.” The letter also came ahead of reports in the Journal and CNBC that the CFTC was investigating Polymarket.
The Weirdest Bets on Prediction Markets
A story in the Wall Street Journal by Alex Goldenberg describes what could be the most egregious example of betting on prediction markets. In May 2026, federal prosecutors in New York indicted Master Sgt. Gannon Ken Van Dyke, a special forces soldier at Fort Bragg, N.C., for using his role in the planning of the January, 2026 raid that captured then Venezuelan President, Nicolás Maduro, to win about $410,000 on Polymarket. The Justice Department called it the first criminal case in the U.S. arising from prediction-market wagers. Van Dyke used information about the strike to bet on the event. This misuse of nonpublic information is an example of insider trading.
To show you how crazy these bets can get, last month a Polymarket trader walked away with $21,398 on a $119 bet that the temperature in Paris would exceed a given threshold on a particular day. The bet depended on a single Météo-France weather sensor sitting near the perimeter of Charles de Gaulle Airport on a publicly accessible road. The sensor recorded a spike of 6 degrees Celsius (about 11 degrees Fahrenheit) in 12 minutes before dropping back, and no other station registered the same. A criminal complaint was filed leading to the theory that someone walked up to the sensor with a battery-powered hair dryer.
Beware of Danger Ahead
Betting on prediction markets can become obsessive behavior, as could any gambling activity. It creates new psychosocial concerns. Research shows that sports betting, especially among younger adults and students, can detract from academic performance, strain social relationships, and contribute to anxiety, depression, and financial instability.
Take the case of John Pederson. The Wall Street Journal reported that Pederson, who was covering from a car crash and low on money, took out a variable-interest loan and started betting on Kalshi, the prediction market that promised a quick way to fix that. At first, it worked. Pederson turned about $2,000 into about $8,000, betting on daily snowfall totals in Detroit. He parlayed that into $41,000 by trading on sports, using strategy he has developed with the help of AI. Then he decided to bet it all and lost.
Some young adults have become addicted to the prediction markets wagering and are being harmed by turning away from their studies, losing social connectedness, and losing money, in some cases a lot of money. Persistent betting could cause depression that affects the lives of these adults for years to come.
It’s important that we don’t dismiss the human element when analyzing whether betting on prediction markets is ethical. Virtues are character traits that underlie ethical behavior. A virtue that is relevant with predictions betting is self-control. Self-control involves mastering one’s desires and impulses. It is often associated with temperance and is considered essential for personal discipline and moral integrity. Betting in any form can become contagious and have serious consequences for the bettors.
What Can Be Done?
Goldenberg identifies three steps that the CFTC should take to regulate the bets on prediction markets.
- Require prediction markets to monitor on-platform activity and the resolution sources their contracts depend on.
- Federal authorities should develop investigative protocols for manipulation campaigns linked to market positions.
- Congress should clarify how existing fraud and market-manipulation statutes apply to conduct designed to move prediction-market prices.
The Wall Street Journal investigated a variety of activities on the prediction markets to see how they are affecting society. On Polymarket, the Journal found that 67% of profits go to just 0.1% of accounts. This means that less than 2,000 accounts netted a total of nearly half a billion dollars. The Journal analyzed 1.6 million Polymarket accounts that have traded since November 2022, which has at least 2.3 million on the site. On Kalshi, there are 2.9 unprofitable users for each profitable one based on data from April 2026. Total trading volume on both platforms have grown to $24.2 billion, up from $1.8 billion just a year ago.
Should Wagering on Prediction Markets Be Regulated?
Some believe that, from a user perspective, prediction markets are similar to placing a wager on an outcome such as in a sporting event. Prediction Market operators argue, however, that prediction markets and sports wagering are completely different, namely that with prediction markets, the “betting” is peer to peer where users take yes/no contractual positions against other users in the market. Whereas with sports wagering, users place bets directly with a house or operator that sets the terms of the wager and assumes the opposing risk. By taking this position, the prediction market folks are trying to avoid as much regulation as possible.
Prediction market operators have increasingly framed their products as event-based commodities derivatives. That framing is intended to place the product within the jurisdiction of the CFTC rather than state gaming regulators. The CFTC, however, is now taking additional regulatory steps with a different administration as the market for event-based contracts continues to develop.
What’s needed now is for the government to figure out the rules of the road and any guardrails to control betting. There needs to be some sort of oversight. It’s time to create a new regulatory agency that adopts rules, oversees activity, and investigates abuses in all forms of betting, including sports betting and betting on prediction markets. As occurs in many situations, the rules have failed to keep up with the expansion of activity on prediction markets.
Blog posted on August 4, 2026, by Steven Mintz, PhD, professor emeritus from Cal Poly San Luis Obispo. You can communicate with Steve at: smintz@calpoly.edu. Visit Steve’s website to learn more about his activities.